China's Shrinking Hog Herd

Rabobank: Smaller Production Could Mean More Pork Imports

Russ Quinn
By  Russ Quinn , DTN Staff Reporter
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Domestic pork prices in China remain 60% to 100% higher than in exporting countries like Canada or the U.S., so the country's recent currency devaluations should have little impact on meat trade. (File photo courtesy Shutterstock)

OMAHA (DTN) -- China's pork industry has experienced one of the largest culls in history during the last 18 months, according to a report released by banking giant Rabobank on Wednesday. This sell-off will be offset by increased pork imports from sellers such as the European Union, the U.S. and Canada.

The decline of nearly 100 million head in China's hog herd and 10 million in its breeding herd is historic, Rabobank reported. This drop is the equivalent to the U.S., Canadian and Mexican pork sectors all disappearing from the global supply in a span of less than two years.

Rabobank expects China's pork production to shrink by 6.5% in 2015, the third-largest decline in production in the last 40 years. This move will be supported by a sizable 600,000 metric tons increase in imports in the second half of 2015.

The pork industry in China saw many challenges during this 18-month period. Producers faced overexpansion between 2011 and 2013, government-supported grain prices and an ever-slowing rate of economic growth.

After reaching a peak in production in 2011, China's piglet and hog herds have steadily declined. Rabobank reported between November 2013 and May 2015, the total Chinese hog herd dropped by 81.4 million head (a decline of 17.4%, while the breeding herd slid by 10 million head (a decline of 20.1%).

The Chinese hog supply will remain under some pressure for at least the next year. Rabobank estimates a decline in China's pork production of 3.7 million metric tons (6.5%) bringing total production to 53 mmt in 2015. Chinese pork production already dropped by an estimated 1.3 mmt (4.9%) during the first half of 2015.

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While Rabobank forecasts gains for U.S. meat exports, grain exports to China could be tempered. Tom Sleight, president and CEO of the U.S. Grains Council, told DTN his organization has been monitoring this situation for several years now.

"China's economy is going through growth pains right now," Sleight said. "There are a lot of people guessing what their growth rate is going to be. It will still be robust, but it will be down from the double-digit growth they've had."

China's pork consumption will also decline along with production, as soaring prices slow demand. Pork consumption will drop by 3.1 mmt (5.3%) compared with 2014 levels, to 55 mmt. This 3.1 mmt drop in consumption will result in Chinese consumers trading down to poultry and, to a lesser extent, trading up to other protein sources such as beef, sheep meat and seafood.

With such a steep decline in pork production, Rabobank expects pork imports into China to increase by 1.9 mmt in 2015, or 45% above last year. Countries such as the EU, the U.S. and Canada have competitively-priced stocks available due to a supply glut after having recovered from the PEDv outbreak in 2014, along with a number of trade bans depressing pork prices and producer margins.

The best-positioned to gain from the rising Chinese import demand is the EU. The EU has several positives including sufficient pork and variety meat available, is price-competitive due to the depreciation of the euro against the U.S. dollar and it uses no growth promoters which would be banned by China.

Rabobank estimates pork production in the EU is expected to increase by 627,000 mt, or 2.8%, while consumption is stale at best. About 1 mmt of extra pork and variety meat is available for export, above the 3 mmt exported in 2014.

While price may seem like the most critical issue to U.S. pork export competitiveness, the use of the feed additive ractopamine has had a greater impact on U.S. pork imports in recent years. Ractopamine, a growth promoter, has been tested and cleared by the U.S. Food and Drug Administration, but it has been banned by a number of countries -- including China -- due to claimed fears over animal and human health.

Because of this, a number of U.S. pork producers have dedicated ractopamine-free hog herds aimed at these markets. Today about 20% to 30% of the U.S. hog herd is estimated to be ractopamine-free.

This gives the U.S. a great deal of additional export volume. Rabobank estimates 2.0 mmt to 2.5 mmt are ready to serve China's growing import demand starting in the second half of 2015.

Annual U.S. export volume should reach 475,000 mt in 2015, which is up from 337,000 mt in 2014. Canada is also expected to increase it exports to China by about 50,000 mt in 2015. Like the U.S., Canada has also been affected by the ractopamine-free requirements.

Russ Quinn can be reached at russ.quinn@dtn.com

DTN Staff Reporter Cheryl Anderson contributed to this article.

(MZT/CZ)

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Russ Quinn